Registrations of Persons - Agents: Limitations and Terminations


The USA has a specific section that deals with the registration of agents with more than one broker-dealer. Here's what the 2002 USA says:

"An individual may not act as an agent for more than one broker-dealer or one issuer at a time, unless the broker-dealer or the issuer for which the agent acts is affiliated by direct or indirect common control or is authorized by rule or order under this [Act]."

As a practical matter, dual registration of an agent is a possibility only if directly authorized by the Administrator.

What if a broker-dealer chooses to have persons affiliated with the firm who should be registered, but does not have them registered? The Administrator has the power to suspend or revoke the company's registration. The firm would also be subject to criminal and civil penalties.

Agent: Termination of Registration
If an agent terminates his or her affiliation with a broker-dealer, that person is no longer considered an agent until he or she becomes affiliated with another broker-dealer.

When the agent begins or terminates an affiliation with a broker-dealer, the firm and the agent must both notify the Administrator.

When a person who was an agent of broker-dealer "A" chooses to leave that firm and goes to broker-dealer "B," the agent must file a new application for registration with the Administrator within 30 days of termination with the original B/D. As long as there have been no new disciplinary issues found in the files within the past 12 months, the agent's registration is effective upon filing, and paying the appropriate fee, of course. Both the "old" B/D and the "new" B/D are also required to notify the Administrator.

Example:
If broker Shenanigans calls one of his best customers while she is on her Lear jet over Mississippi and effects a transaction to sell some of her stock, does he have to be registered in that state?

Answer:
No, because Shenanigan's client was simply visiting (or in this case, flying over) the state.
  • An agent can effect transactions in a state if his or her registration is pending (but not approved) for 60 days ONLY WITH EXISTING CUSTOMERS, assuming the following:
    • He or she is registered in another state.
    • The broker-dealer the agent represents is registered in the state.
    • There must not be an injunction restricting the agent from registration in another state.

Example
John decides one day that he has had it with New York, where he is a registered agent. Consequently, he throws all his stuff in a suitcase and relocates to sunny California, where he gets a job with the broker-dealer Flashy Cali, Inc. He begins effecting transactions with existing customers who have also recently moved to the state - with the consent of his new firm, of course. He operates for the first 56 days, until the Administrator informs him that his registration is active. Because John began effecting transactions before actual registration approval by the Administrator, has he committed any fraudulent activity?

Answer
No, assuming his registration was never revoked in another state and his new firm Flashy Cali, Inc. is registered in California, John is in the clear. John can ONLY conduct transactions with existing customers who have moved into the state while in the 60-day window, he cannot solicit new business until his registration is active. Thus, because Flashi Cali, Inc is registered in California, he has not had his registration revoked in another state and he has effected transactions for less than 60 days, he has not violated the USA.


Exam Tips and Tricks
Series 63 Exam Flash Card - Agent
  1. If you receive direct compensation from a commission, you must register as an agent.

  2. If you represent a broker-dealer that charges commissions, or an underwriting fee, you must register as an agent.

  3. If you do not charge a commission and are effecting exempt transactions and/or in exempt securities, you DO NOT need to register as an agent.

  4. Usually, unless you are representing a government-oriented entity, you need to register. For example, if you represent a firm that does not charge a commission for the sale of a municipal or federal security, but DOES receive an underwriting fee, you have to register.

Look Out!

Regardless of exemptions, if you accept a commission/compensation based on the sale of a security, you ARE an agent and registration as an agent, under the USA, IS REQUIRED.



Exam Tips and Tricks
The Series 63 exam may ask a question similar to the following: "If you are an office assistant and do not directly benefit from a securities related commission, are you an agent?" The answer is: "No". Assistants who provide price and/or supporting information are NOT agents. A simple way to view this is if an individual deals with public customers in securities, then he or she should be registered as an agent.


Additional information the USA covers regarding agents:

  • Limitations of affiliations
    • The USA "limits agents to a single employment or affiliation unless a rule or order of the Administrator authorizes multiple affiliations." In short, an agent can only represent one firm unless he or she gains approval by the Administrator, as noted above.

  • An agent has no specific minimum financial requirements to register, although the Administrator reserves the right to require the agent or broker-dealer to post a bond.

  • If the agent becomes insolvent (i.e. bankrupt), registration may be terminated if it is deemed, by the Administrator, to be "in the public interest."

  • Multiple agents may split commissions as long as the same parent broker-dealer employs them. What's more, transactions from a state can only benefit more than one agent if the agents are both registered in that particular state.

Agents: Initial Registration

  1. Initial registration for an agent is very simple. If a person or an entity falls under the definition of an agent he/she/it MUST register as an agent via the broker-dealer. He or she must also sign a consent to service of process.

  2. In addition, the USA mentions that both the agent and broker-dealer are to notify the Administrator of new or terminated employment.

Agents: Update
If at any time an agent has any material change in vital information (i.e., name or address), he/she and the broker-dealer are required to notify the Administrator.

Agents: Renewal
An agent's broker-dealer usually pays annual renewal fees.

Agents: Termination

  1. If an agent's affiliation with a broker-dealer is terminated at any time, either by the agent or the broker-dealer, both the agent and the broker-dealer are to notify the Administrator.
  2. An agent's registration is only active as long has he or she is affiliated with a broker-dealer.
Investment Adviser: Definition
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